Alcatel is buying Nortel's 3G mobile phone network business for $320 million.
Alcatel will acquire Nortel's UMTS radio access business, including 14 Nortel customer contracts, and so make Alcatel one of the biggest suppliers of UMTS gear worldwide, giving it contracts with one in four UMTS operators.
The companies have signed a non-binding agreement to merge and hope to close the deal by the end of the year. The deal depends on a final acquisition agreement, negotiations with works councils, and securing regulatory and other approvals, both companies said. A "significant majority" of Nortel's employees in the UMTS division would be transferred to Alcatel.
The deal appears not to affect Alcatel's proposed merger with Lucent, announced in April. That deal is due to be voted on by shareholders of both companies on 7 September, although some at Lucent are expected to try to block the vote in court.
The Nortel deal makes sense for Alcatel, said Ovum analyst Julien Grivolas, since Lucent has only one major UMTS customer. It would also build up Alcatel's operations in North America, he noted.
There is plenty of competition in the UMTS field. Sony Ericsson leads the pack, and other companies have allied to shore up their strengths. Nokia and Siemens said in June that they would merge their telecommunication infrastructure operations. The other major players, Motorola and Huawei are establishing a joint research lab for 3G.
Smaller players will have to find a niche to survive, which is difficult in a market where equipment must use the same standards to operate, Grivolas said.
The sale by Nortel continues a restructuring plan at the company that has included 1,900 job cuts over the next year. The Canadian company said in a statement its UMTS access business "lacks the scale and momentum needed to become profitable."
Nortel said it will continue to develop GSM and other mobile technologies, as the company focuses on emerging 4G mobile video and multimedia services. Alcatel sees the acquisition as a way to build on an expanding UMTS market and increase its technology portfolio for major operators such as Orange and Vodafone.